The app explosion

Steve Sheraton is one of the lucky ones. Back in 1999, he wrote
a PC program that simulated the gradual emptying of a beer glass.
After the first iPhone was launched in June 2007 - a year before
the App Store - he decided to test demand for rewriting his code.
"I know this was the platform I needed - the high-resolution
screen, the great sound. So I created a fake app and put it on
YouTube. People went crazy, so I slapped together an online store
and started selling it. It certainly paid the rent."

Then came the App Store. "Apple begged me to finish the iBeer app
before they launched the store," Sheraton says. It became one of
the ten top-grossing apps of 2008 (and the subject of a $12.5
million lawsuit against Molson Coors Brewing Company after it
released the similar iPint). Still, it too faced the opacity of
Apple's scrutiny. "I submitted an update and all of a sudden Apple
wouldn't accept iBeer because it had a burp at the end," he
recalls. "So I publicised the app despite the missing burp, and we
got demands to put back the burp, even though we couldn't. And then
a month later, iFart was released…"

He is distributing his latest app, iHypno, through a third-party
app store, Premier Apps. Why? "You have 65 million iPhone OS
devices worldwide. That's the population of France. Now, imagine
there only being one shop to buy wine or Camembert in France. A
great proposition for the shop owner, but say he doesn't like
Bordeaux - well, imagine where France would be then."

Plenty of developers have found success outside the Apple store.
Jazan Wild was a successful comic-book writer. Paper comics are
tough to make money with: the distributor typically takes 60 per
cent. He started Carnival Comics and published Funhouse of
Horror, which sold out (2,000 copies); but since he launched
an app through Nokia's Ovi store, the comic has had 250,000
downloads in 181 countries - more, he believes, than any comic book
in history. "We've been on all mobile phones, but with Nokia it
seemed to explode," Wild says. "As a business you want to be with
the company that gets your vision." The result: "Enter freedom - in
the form of mobile apps. Mobiles will become the portal for all
entertainment - from comics to reality shows. Big TV screens are
great, but it's now so easy to reach people in other
countries."

Some developers favour BlackBerry. Unlike the iPhone's, its apps
can run constantly in the background. This "always-on seamlessness"
engages users, according to BlackBerry's Tyler Lessard, and has
heralded successes such as the Slacker personal internet radio (in
the US) which recommends stations according to taste, and
synchronises them to your device for offline listening.

Others have simply wanted to be ubiquitous. British firm Shazam,
whose software identifies music using handsets, says it was No 1 in
the Ovi store in November, No 3 on Android Market, and No 1 when
BlackBerry AppWorld launched. The app now has 50 million users
across 150 countries. According to CEO Andrew Fisher, the free
service has brought strong freemium revenues as customers click to
buy music. "Geolocation will become important, giving Shazam a
one-to-one relationship with consumers."

Geolocation - knowing where you are in real time - is an example of
how the smartphone's personalisation will alter how businesses
interact with customers, according to Android's Erick Tseng. "That
mobile device is never more than a metre or two away from my body,
even when I'm asleep. It knows all my friends through contacts
applications; it knows where I am because it's got a GPS chip; what
I'm doing, as I've got my calendar on it; and it's got all this
contextual knowledge about me. That's very powerful."

It's a rainy Monday November night in Soho, central London. About
95 people, mostly male, are gathered in the Digress bar sipping
bottled beer. Three-quarters are app developers; the rest are
involved in app-service businesses - and they look only slightly
less anxious.

We're here to find out how to make money from apps. "To app or not
to app" is the title of the inaugural AppJam, bringing together
developers and entrepreneurs. The panel discussion doesn't prove
too revealing for hardcore programmers - "obvious and clichéd",
grumbles one - and they are suffocated by the lack of wi-fi; but
after the formal Q&A, the event livens up. Face-to-face contact
with other entrepreneurs is the big attraction. "You see the same
faces," says Tiffany Mitchell of Intomobiles.

Neil Stanley, 45, behind an app called iHi - it displays large
messages on the iPhone screen - took a train from Bath to be here.
"Every day I learn something new and often realise that things we
were doing a month ago were naïve," he says. Stanley used to work
at Goldman Sachs. It taught him about the challenges of entering a
crowded market: "Even with the greatest app ever, the world does
not beat a path to your door." So he's created some viral videos,
tweeted celebrity endorsements from the likes of Will Carling, and
integrated AdMob software into his latest release.

In recent months, Apple has allowed "in-app purchasing", which
Stanley sees as game-changing. "Users download our free version and
if they want advanced features they can pay within the app."
The Guardian, similarly, hopes users of its £2.39 app will
pay extra for privileged access to in-demand columnists.

For gaming companies, in-app payment has already proved itself.
"Opportunities to sell virtual goods will be huge, judging by the
current online gaming market in Asia, mostly made of virtual goods
and worth over $7 billion a year," according to Benjamin Joffe, CEO
of analyst Plus Eight Star. Playfish, a social-gaming firm bought
by EA for up to $400 million, sees in-game microtransactions as
vastly lucrative. "When we ask users why they spend so much money
on virtual Christmas decorations, the answer is the same: 'My
friends can't see our real Christmas tree, but Facebook friends can
see a virtual one,'" says co-founder Sebastien de Halleux. "You
offer the game for free and you monetise from microtransactions -
it's a form of self-expression, linked to social emotions.

"Where can it go next year? One game alone could get 100 million
monthly users - and if they're each paying 50 cents a month, we
have a billion-dollar platform."

Others are sticking to traditional models. Apple's top-grossing UK
app for much of 2009 was Tom- Tom's UK & Ireland satnav service
priced at £59.99, just above its western-Europe version, at £79.99.
"If the application is very good, we really don't see a price
barrier," explains Benoit Simery, senior vice president of onboard
mobile at TomTom.

Getjar's Ilja Laurs, 33, who originally studied banking in
Lithuania, offers some tips. "Think: is there a way that some kind
of mobile service will help to enhance my business - make it
better, cheaper, faster for consumers? And don't just think about
the iPhone: if your service is like Facebook, where a 12-year-old
is more actively involved, it's rather wrong to assume that they
all have iPhones - in fact, Java is much more likely to cover 95
per cent of your consumer base."

"The era of the app is just beginning," says Bob Borchers, the
former iPhone executive who now runs an investment fund, Opus
Capital. As well as earnings from in-app games purchases, Borchers
sees potential in sectors such as health. "There's a transformative
opportunity," he says. "There's a push for more efficient delivery
of healthcare, while keeping the service high. A great example is
AirStrip Technologies, who put a small server in the hospital's IT
closet. It collects patient data and forms and sends them securely
to the physician's phone - information they would normally only get
at the bedside."

In March 2008, KleinerPerkinsCaufield & Byers (KPCB), a leading
Silicon Valley venture-capital firm, launched a $100 million
investment fund with Apple to back start-ups producing iPhone apps.
Matt Murphy, who runs KPCB's iFund, estimates the size of the app
economy at $2 billion this year. "We're figuring out business
models that lend themselves to recurring revenue opportunities -
the freemium ones, subscription, advertising, affiliate fees,
in-app commerce. These things will kick in heavily in the next
three to six months. If you can monetise an audience of 500,000,
you can build a big business."

Murphy, who's on the board of a number of mobile-internet
start-ups, is in no doubt that this is the moment of opportunity.
"Look at Facebook - the average user who has the iPhone app
utilises it 70 per cent more, he says. "Apps will be bigger than
the [desktop] internet. There's a huge amount of money to be
made."

Comments

"We are barely 18 months into the era of smartphone app stores... " Presumably Wired UK also believe that the iPod was the world's first MP3 player.

Amonst many others, Handango had a very successful business selling apps for smartphones many years before Apple entered the market. We are a great deal more than 18 months into the era of smartphone apps stores.

George Clorey

Jan 10th 2010

Great article about the continued surge of new iPhone apps. I enjoyed reading this issue of WIRED UK from cover to cover and was inspired to post a few comments on our blog (www.mckenzieworldwide.com/blog).

Please keep up the great work! Now my typical WIRED read will include the UK version as well as the US version going forward. Cheers!